German auto industry sticks to flat sales forecast

FRANKFURT -- German auto industry association VDA on Monday kept to its forecast of roughly flat car sales in Europe's biggest auto market this year, pinning its hopes on a recovery in demand in the second half.

The association expects about 3.25 million new car registrations in Germany in 2003, broadly stable compared with last year, despite a fall of one percent in the first five months of the year. VDA, which tends to be more optimistic in its forecasts than individual manufacturers and other industry experts, also forecast domestic production of five million vehicles this year and exports of 3.55 million cars.

Weak economic conditions and subdued consumer sentiment in Germany have hit car sales in the last couple of years but there are signs that the domestic market is at last bottoming out.

"The (auto) market follows sentiment and this is still subdued and characterized by caution," VDA President Bernd Gottschalk told a news conference.

"But there are attractive models available, interest rates have fallen, planned tax hikes have been canceled, there is money available as seen from the high level of savings."

"We have a good chance of reaching our targets," he said.

So far this year, Ford and Italy's Fiat have lost most market share in Germany while France's PSA-Peugeot Citroen and Renault have gained most.

German carmakers have in recent years earned between 20 and 60 percent of their profits from exports to the United States, but are now facing pressure there from the strength of the euro against the dollar, which makes exports more expensive.

Gottschalk said he expected U.S. demand to fall to about 16 million vehicles this year, against 16.8 million in 2002.

STRIKE DAMAGE?

German carmakers are also suffering from a strike in some eastern German states over the length of the working week which threatens to halt output of some important models.

Traders said negative sentiment about the possible effects of the strike was weighing on the stocks.

The action has hit suppliers in eastern Germany which deliver parts to carmakers including BMW, which has stopped production of its 3-Series cars at its Munich and Regensburg factories. VW has also said production of its Golf and its small Lupo will be hit.

VDA, which criticised the industrial action, said production of 1,370 vehicles per day in eastern Germany was lost due to the strikes and 1,800 vehicles in western Germany.

"The main competitive advantage of eastern Germany is put at risk (by the strikes) ... there will be negative effects on investment in eastern Germany," said Gottschalk.

However, one German bank said it believed the impact of the strikes on companies' profits would be "very small" as long as the stoppages lasted only one or two weeks.

"All the vehicles impacted by the strike are currently not running at peak volumes and it should be easy to catch up lost volumes in coming months if needed," said the bank in a note.